My previous post discussed how Special 301’s enforcement mechanism has rarely been used, and is even less likely to be used in the future. But the frequency with which an enforcement mechanism is used is not a measure of effectiveness. We don’t measure the effectiveness of criminal justice systems by the number of people in jail (at least, we shouldn’t). Perhaps Special 301 is effective in accomplishing its goals even without resort to its enforcement mechanism.

What are Special 301’s goals? According to USTR’s discussion of its statutory mandate, there are two different motivating concerns: Special 301 must 1) identify countries “that deny adequate and effective protection of intellectual property rights,” and 2) identify countries that “deny fair and equitable market access to United States persons that rely upon intellectual property protection.”

These two goals are very different. A country with very high standards of protection for intellectual property might nonetheless be considered to deny market access to U.S. persons. For example, by any reasonably objective standard, the European Union offers very high levels of IP protection. Yet as recently as 2006, Special 301 listed the European Union on its watch list, citing “concerns” about the EU’s geographical indication (GI) regime. Given that GIs are a form of intellectual property, USTR essentially placed the EU on its watch list for offering too much IP—or, if you prefer, the wrong kind of IP. Interestingly, this is a tacit admission by the U.S. that at least some kinds of IP can act as trade barriers.

Special 301 reports tend to focus more on the first issue than the second; that is, countries are more often cited for their failure to offer U.S.-approved levels of IP protection rather than for market access issues. Furthermore, most of the academic literature on Special 301 tends to focus on the “adequate and effective protection” part. Thus, this is where I’ll focus my attention as well. That said, it would be worth trying to evaluate whether Special 301 is effective in improving market access at some point.

Obviously Special 301’s goal isn’t just to identify countries, but also to increase the level of protection these countries offer. As a result, it’s possible to evaluate the performance of Special 301 by measuring the degree to which cited countries’ IP protections increase.

Of course, it’s not quite that simple—one needs to control for other factors that might be responsible for increasing levels of IP protection. After all, the general level of IP protection around the world has been creeping upwards for a long time. In the graph below, I plot the Park-Ginarte index of patent rights (Ginarte & Park, 1997; Park, 2008) for all available countries and years, along with the mean world value (the black dots). Obviously patents aren’t the only IP at issue, but given the upward trend in copyright terms, accessions to the WIPO Internet Treaties, and implementation of TRIPS, it would be tough to argue that worldwide levels of copyright protection haven’t also been increasing in a similar fashion.

Thus, in order to determine if Special 301 is effective, one would have to compare the increase in IP protection of cited countries against the increase in IP protection of non-cited countries while controlling for other factors associated with increasing IP protection, such as the level of economic development or whether a country has joined the WTO and implemented TRIPS.

A lot of the research on Special 301’s effectiveness uses single case studies and is rather dated, focusing on the early years of the process. I’ve only been able to identify one recent study that tries to take the approach I’ve outlined above: Riker (2012) published an article entitled “Special 301 and Royalty Receipts from U.S. Trade Partners” in the International Trade Journal. He concludes that “priority designations between 2001 and 2007 are associated with a cumulative $5.4 billion increase in annual U.S. royalty receipts.” Riker speaks of the “economic consequences” of Special 301 designations, implying that a causal relationship exists between designation and increases in U.S. IP royalties.

I’m working on trying to replicate his results, but there are a number of problems with the article. First is the selection of the dependent variable: Riker chooses to use BEA data on IP royalties received by the U.S. from other countries. However, the stated goal of Special 301 isn’t to increase the level of royalties received by the U.S., but to increase the level of IP protection foreign countries offer. Riker chooses to treat the level of IP protection as a latent variable, and rejects using the Park-Ginarte index since it is only available in five-year increments. This strikes me as odd; first, since the Park-Ginarte index is available for 1990, 1995, 2000, and 2005, one could test to see whether Special 301 designations have any effect on the measure in these years. Second, the Park-Ginarte index isn’t the only measure of IP protection with wide coverage. The World Economic Forum produces a measure of IP protection, currently available for the years 2006-2013. (Though to be fair, the WEF data probably wasn’t available when Riker was writing the paper). Third, the World Bank produces data on royalty receipts and payments with wider coverage than the BEA data; this data might capture increased royalties that flow to countries besides the U.S. as a result of Special 301 designations. After all, there’s no logical reason to expect the benefits of increased IP protection in foreign countries to accrue solely to the U.S.

In fact, using BEA’s royalty data as a dependent variable would probably be a far better choice for evaluating Special 301’s progress towards its other goal—increasing market access for U.S. persons. But Riker’s models don’t include any measure of market access.

The next big problem with Riker’s article is its relatively limited data coverage. Special 301 has been around since 1989, yet he examines only the period between 2001 and 2008. Furthermore, because of his choice of dependent variable, he is forced to limit his analysis to the 33 countries for which the BEA provides IP royalty receipt data. Of these 33 countries, only 14 were designated as Special 301 priorities. In contrast, by 2007, Special 301 had over its lifetime designated a total of 87 countries.

Part of the problem is that Riker limits what he counts as Special 301 “designations” to Priority Foreign Countries, Priority Watch List members, and countries undergoing Section 306 monitoring. There is no logical reason to exclude countries on the Watch List, yet Riker ignores these designations. Perhaps he assumes simple Watch List designations will not have any effect on royalties; if so, that assumption should have been tested, as the answer would have been illuminating. Still, between 2001 and 2007 (Riker’s range of Special 301 data) there were 30 countries that meet his criteria for designation, but his dependent variable only allows him to include less than half that number in the analysis. There is no way to know if his results would hold when extended beyond his minority of selected countries.

Finally, Riker assumes “that the Special 301 priority designations are exogenous determinants of U.S. royalty receipts from the prioritized countries.” That is, Riker assumes that there is no way priority designations could be affected by royalty receipts. This is an unjustified assumption. In fact, one could reasonably assume endogeneity here: priority designations might be focused on countries with increasing royalty receipts, since these are precisely the countries that matter most to USTR and private stakeholders.

To wrap up, the only large-N quantitative study assessing the effectiveness of Special 301 suffers from a less-than-ideal choice of dependent variable, very limited data, and implausible assumptions about how Special 301 works. It cannot be used to conclude that Special 301 is generally effective in increasing the level of IP protection in cited countries.

Contrary to Riker’s description of Special 301 designations as a “technical assessment,” Special 301 is a highly politicized process. As Flynn (2010) notes, most of the recommendations made by powerful private stakeholders find their way into the final report. My next post will address the politicization of Special 301; for now, it suffices to say that there is very strong evidence that Special 301 designations are anything but “technical assessments.”

This post is licensed CC BY-SA 4.0, and may be shared and reposted with attribution. Please include a link back to this page, which will contain the most up-to-date version.